The authors of last November's successful Proposition 71, the stem- cell research initiative, asked California voters to trust them in two distinct ways.

First, they convinced voters -- in some cases with shamelessly exaggerated promises about the imminence and likelihood of cures -- to invest $3 billion in research that has potential but is still at an early stage.

The second request was written into the initiative in print so fine that few voters had a chance of understanding it. Using obscure legalese, the initiative exempted the state agency it created, the California Institute for Regenerative Medicine, from many of the hard-won legal protections meant to ensure effective and transparent state governance. The result is that the institute, an agency entirely funded by the California public, is being run according to the practices of private enterprise. It best resembles a publicly funded, privately managed venture capital firm.

Now this experiment is facing a major obstacle. Lawsuits are challenging the constitutionality of Prop. 71's exclusion of public and legislative oversight. The state attorney general has determined that the bonds to fund the research cannot be sold while the legal fate of the endeavor is in doubt, which could be for more than a year. Robert Klein, the controversial chair of the institute's citizens oversight board, responded with a creative but dangerous proposal. He suggested that the institute seek $100 million in loans from "philanthropic sources" to be repaid once bonds can be issued. If they can't, then these loans become grants.

Prospecting for high-risk investments is appropriate in the private venture-capital model, but it is no way to lead a public agency. The institute would be giving out grants with one hand and asking for loans with the other. Too many likely "philanthropic sources" would have an interest in where the grants go, and could expect favors in return for a risky loan. The potential for conflict is just too great.

Unfortunately, this is part of a pattern by the institute's leadership. Its excessive haste and reluctance to act like a public agency have led to decisions that are inappropriate and put the institute at risk. The "independent citizens" board is neither -- it is dominated by individuals who have a stake in the research. Many have major investments in the biotechnology industry. The top leaders of the California Institute for Regenerative Medicine continue to resist applying California's open-meetings laws, the Public Records Act and effective conflict-of-interest provisions to its powerful advisory groups, from which they were exempted by Prop. 71.

Klein has thumbed his nose at the Legislature, declining to appear at a recent state Assembly/Senate informational hearing on the program chaired by Sen. Deborah Ortiz, D-Sacramento, a supporter of Prop. 71 who now acknowledges its flaws. According to veteran political analyst David Jensen, the institute has even hired a $10,000-a-month lobbyist to fight the Legislature. Such reckless actions are turning allies into opponents, and endangering the institute's mission.

The good news is that some elected officials are heeding the cautions of public-interest advocates and trying to rein in the program. A few days after Klein described his funding proposal, a finance committee chaired by state Treasurer Phil Angelides authorized a somewhat more responsible funding mechanism. An interim loan of $200 million would come from "bond anticipatory notes." Although Californians would bear the burden of the elevated interest rates that such high-risk bonds would entail, if the notes are offered to the bond market by the treasurer's office, and not the institute itself, then Angelides' approach seems to remove the potential for conflict inherent in Klein's plan.

In addition, Ortiz has introduced a set of reforms that address many of Prop. 71's shortcomings, and that were unanimously approved by the Senate Health Committee. They would apply the new conflict-of-interest standards adopted by the National Institutes of Health, and California's open meetings and public records law, to the California Institute for Regenerative Medicine. They would strengthen the state's claim to profits from any successful developments.

The world is watching California's experiment, and neither the taxpayers nor the potential of stem-cell research can afford a series of "stem cell scandal" headlines. That risk can be reduced, and the intentions of the voters furthered, if the institute's leadership would heed the warnings of public- interest advocates and adopt the good-government practices to which it so far has given mostly lip service.